We are doing an informal survey of all of our clients we’ve done business with over the past thirty some years.

Over the years, we have talked to well over fifteen hundred different families and their situations and came up with options for their estate planning needs. We’d like to talk to them about how our planning helped them, who is running the farm today, and has this next generation planned for the future by completing good estate planning.

As you can imagine, my planning experience spans four decades – the eighties, nineties, two thousands and now this decade. As such, I’ve worked with children of people who survived the Great Depression. I’ve worked with families before, during and after the eighties onslaught and the nineties when it was considered ‘child abuse’ to give your child the farm.

Each generation seems to have their own signature.

Children of the Great Depression were infamous for doing planning but not telling anyone what they had done or how it was completed. Their children were told to mind their own business. They were told, “You’ll find out when we die” – and their parents kept their word. Many couples had no wills as they trusted no one to help them because they thought they’d be taken advantage of. Most farm children were entirely shocked at the plans – or lack thereof – their parents had put together. This was the ‘radio’ generation and most people received information from newspaper and radio.

During the eighties and nineties, attitudes began to shift.

Gradually, more and more parents shared with their children what their thoughts were for the future and how they were going to implement this in their wills and other documents. Most importantly, how this would work out for the farming child. ‘Equal is not equitable’ became popular in farm and ranch estate planning as parents began to recognize the ‘sweat equity’ of a child who stuck with the farm operation versus the other children who did not.

This was the television generation. They received information by what they heard on radio and TV, but also by attending meetings, researching in papers available, and talking (socializing) with other farmers and ranchers.

The past ten to fifteen years has brought about the ‘smart phone’ generation. Machinery has grown larger and far more complex, needing more technology to work efficiently. Along with efficiency rising, so too have the costs of land as more land can be operated more profitably.

As profits grow, so do land values and the need to have someone committed to keeping up with the technology education necessary. Much of the information this generation receives is via smart phones and through internet connections of one sort or another.

As information has moved to tech media, fewer and fewer young farmers and ranchers are attending meetings to learn new ideas, new methods of improving practices, unlike the eighties and nineties group. Today, when they need information, ‘Google it’ is the quick answer.

Lost in this transition of education from the ‘Great Depression radio generation’ to the ‘smart phone’ is the ability to meet face to face, communicate openly with other people and to openly express your desires and needs.

It’s hard to do any of that by text, Skype, Gmail, etc. This generation is glued to their cellphones and the panacea of information. Yet, they are inundated with advertisers from all directions. This leads to confusion – ‘who is right, who is wrong??’ When confusion reigns, indecision follows.

Estate planning requires meeting face to face and having someone understand you and your desires and needs. However, this generation has done less estate planning than the ‘radio generation’ of the Great Depression – a major step backwards. Does this mean we will repeat the one generation grows value, the next generation enjoys it, and the third generation loses it?

We’d like to visit with our old clients and new to see what their thoughts are and we’ll post our results.

“Keeping the Family Farm in the Family”
Great Plains Diversified Services, Inc.
1424 W. Century Ave., Suite 208
Bismarck, ND 58503-0917
Telephone: 701-255-4079
Fax: 701-255-6106
Toll Free: 1-800-373-4078

John and Mary Carson came to me with what may be a unique problem, or it might be a trend for the future.

“Our son, Marvin, came to work with us about six years ago. He brought his wife and his two children to the farm. Of course, we had more than enough work and enough income to go around,” John said. “But now times are changing and I’m not sure if Marv came back to farm or if he came back because prices were so good then!”

Mary chimed in “The first couple years were great. But then Marv’s wife, Alberta, decided they needed a big new home. Next thing we know they are plotting out and building a home so big our house could fit inside of it. They drive better vehicles than we have. Kids these days don’t want to start the way their parents did – small and work your way up. They want to start at the top!”

John said “Since the prices were a little tough last year, we noticed things are not going quite as smoothly as they did before. Marv’s a lot more short-tempered with everyone and Alberta doesn’t want to talk to us anymore. I know you said you’ve got to have a will to help out these kids – so we talked to our attorney making certain Marv gets the lion’s share of the property. Now we’re not so certain we did the right thing.”

Farming is easy and fun when prices are good, the weather cooperates, and there’s all kinds of money to go around. However, as in any business cycle – mine included – there are ups and downs. A lot of second generation children came back to farming – either on their own or at the urging of the parents – and now we’ve entered a new and different financial cycle.

Unfortunately, if the first six years of your business experience shows you that you can do no wrong and money almost literally grows out of the ground, it’s not going to give you a very good long-term perspective on business on the whole and farming in particular. Being young and not having lived through the financial difficulties of the eighties and nineties when times were tough gives the next generation a feeling of being ten foot tall and bullet proof.

“What is the reason Alberta’s not talking to you?” I asked John and Mary. Mary replied “Well, when they were building that new home we tried to tell the kids not to go overboard, but Alberta wanted what she wanted. We kept trying to tell them to slow down a bit and, finally, she told us she was tired of us ‘meddling’ in their lives. Now we barely get to see the grand-kids anymore unless Marv brings them around,” as she wiped a tear away.

“Family difficulties aside, perhaps it’s time to go visit with the attorney again, John and Mary. Based on what you’ve told me, Marv gets most of the land and machinery while you’re other children only get a percentage of what Marv will get.”

“Perhaps you need to think about a clause that says something like ‘Marv must be actively farming at the time of our death(s) and continue to actively farm for at least ten years after our death in order to maintain his share.’ If he does not, then the farm shall be divided equally between all of your children, or maybe Marv gets a slightly bigger share than the others.”

“That way, if you two should die, and Marv and Alberta decide farming isn’t the life for them, they can’t put the whole thing up for sale, reap in millions of dollars on the sale of land and machinery and leave the other children in the lurch.”

Any business will go through times in the crucible – times when we find out the true metal of the people in that business. Some of these children will adapt to the times and other children will find that this life isn’t what they thought it would be and leave. Whichever the case, you need to add some clauses to your will that will handle whichever fork in the road they decide to take – if that should happen after your death.

“Keeping the Family Farm in the Family”
Great Plains Diversified Services, Inc.
1424 W. Century Ave., Suite 208
Bismarck, ND 58503-0917
Telephone: 701-255-4079
Fax: 701-255-6106
Toll Free: 1-800-373-4078

Michael and Pat came to me with an interesting problem.

‘You know,’ Michael said, ‘over the past decade we’ve had a pretty good run in farming. With the tax write offs and Section 79, we’ve built our machinery up to close to two million dollars, we’ve added new buildings with the five hundred thousand dollar accelerated depreciation.’

‘But now, we have an estate tax problem, because our estate is too large. We don’t want the government to tax us on our farm on money we’ve already paid taxes on but we don’t have a plan to cover this possibility. We don’t want to buy life insurance or long-term care insurance because we think it’s a waste of money.’

As with most things people tell me, I have to filter these through my head a little and make sure I heard right.

‘Now, Patty and Michael, you two have built an estate of over ten million dollars and you have estate tax issues? You also were able to build some portion of this estate with tax-free dollars due to depreciation and Section 79? If you were to sell everything off today – machinery, land, etc. – what do you think your taxes would be?’

Mike and Patty thought and said ‘Well, it would probably be about forty percent on two million dollars of machinery, capital gains taxes of twenty-three percent on the land’s growth – I suppose all in all, it would be close to one and a half million to two million dollars!’

I replied ‘If I understand you right, if you sold, you’d pay over one million five, but if you die and the kids sell or inherit it, you said it would only be just under five hundred thousand?’

When they looked at it from that angle, they conceded the estate taxes were the lesser of two evils – and sometimes that’s as good as it gets with IRS!

I asked ‘My next question is this – what did you originally pay for the land and what’s it worth today?’ They answered ‘It was between two hundred and five hundred dollars an acre and now it would be worth about twenty-five hundred per acre.’ I asked them if they thought that was a good deal and Mike beamed and said ‘Best investment I ever made.’

‘So Mike, you weren’t able to deduct the costs of the principal payments but you like the idea the land is now worth five times what you paid for it – even though it wasn’t tax deductible?’ ‘Yes, that’s right,’ he replied. ‘Best investment ever.’

‘So, Mike and Patty, life insurance is exactly like buying land for two hundred dollars and acre and having it guaranteed to be worth twenty-five hundred an acre.’

‘Just like land, you can’t deduct the cost of the land. On the other hand, you won’t pay any interest either. If the land was a good investment – best investment ever made ‘quote unquote’ – does it make a difference to your estate it they get twenty-five hundred in land or twenty-five hundred in cash? Seems to me, you have enough land, but what you don’t have is enough cash – and now the kids are going to have to sell some of the land to come up with the cash. You lose the land, you lose all the future income from the land, and you lose the kids’ inheritance. Is that a problem?’ ‘Yes, it sure would be,’ Mike and Patty replied.

‘In addition, you love tax advantages like Section 79, accelerated depreciation, etc. but did you know that the difference between the premiums paid and the death benefits is non income or estate taxable to your estate – set up correctly?’

‘It seems to me – and correct me if I’m wrong – but if I can buy property – in this case cash property – and pay ten to twenty cents on the dollar and not have your estate or children pay taxes on the guaranteed gain, that ranks right up there with buying two hundred dollar land, doesn’t it?’ ‘I see your point’ Mike admitted.

Mike and Patty had talked to another planner. The other planner suggested an LLC to lessen their estate tax problems. Over the next ten years, they were to give away twenty-five percent of their estate – and along with it twenty-five percent of their income to their children, as that’s how LLC’s work. Plus, paying considerably more for accounting and legal fees over the years. They could lose up to one-third of their retirement income. Whereas using insurance they would use only eight percent of their income and rest easy at night knowing they were covered and hadn’t lost their retirement income. It’s an easy choice when you understand all the tax advantages!

“Keeping the Family Farm in the Family”
Great Plains Diversified Services, Inc.
1424 W. Century Ave., Suite 208
Bismarck, ND 58503-0917
Telephone: 701-255-4079
Fax: 701-255-6106
Toll Free: 1-800-373-4078

Shane came to me with the following problem. “I came back to the farm about six years ago. My mother had died unexpectedly and my dad had developed some health issues that didn’t allow for him to do as much labor anymore. Now that I have been there for six years, what started as an emergency situation is now feeling like the right career choice for me.

He continued “My dad acquired both land and machinery debt close to a million dollars over the past few years. As such, I haven’t acquired any land or machinery as Dad needs the income to pay the debts. With his failing health, I finally asked him what happens if he dies. He said the land would be split up between me and my sister (who doesn’t farm) and we would work things out. What should I do?”

I told Shane “If your dad won’t change the will, and won’t allow you to purchase some of the assets today, you should find another line of work.”

“Why? Here is the deal. If you inherit half of the assets and all of the farm debt, you are getting a worse deal than your sister. When it comes time to settle the estate, the banks are going to come calling for the outstanding loans. Don’t expect your sister to show up and offer a part of her inheritance to pay off the loans. She can simply sit back and wait until you make the decision to farm or not farm. If you decide to farm, she’ll say that’s okay – as long as you take on the debt. If you don’t farm, then you’ll both share in the debt.”

Shane said “Well, my dad has some life insurance of about a quarter of a million dollars. Dad wanted that to be used to pay the debt.”

I said “In most cases, the spouse was named as the primary beneficiary but now that your mother is dead, then the normal contingent beneficiaries are you and your sister. If she gets a check from the insurance company for half the death benefits – as is her right as beneficiary – again, I wouldn’t expect her to give it back to the estate to pay debts with it. As far as she’s concerned, that is her money! Unless you change the beneficiary, it’s not going to be there to pay for debts and again, you sister will have half of the assets but none of the debt”.

Here is what should be done. If you have significant debt on the farm operation, the farming child is going to need at least a two to one asset to debt ratio before s/he will even be able to function.

Why? Because bankers use the old forty-five to fifty-five percent ratio of debt to determine whether or not they will continue lending money to you – even for such things as operating.

If you walk in the bank with a debt ratio – inherited or not – of higher than this amount, you’re going to get a cup of coffee and a cookie but not a loan and you’re out of business.

If dad is serious about keeping this family farm together, he has to recognize this basic principle. If he gives you double the debt value in assets and then splits the rest between you and your sister, then we might have an equitable situation. We still have to control what the sister might do with her undivided share.

On that note, for the assets she receives, you need to have a rental rate based on a profit margin for your farm operation, or a purchase option that will work for you based on what your particular farm or ranch is capable of producing.

For her protection, Dad can put a clause in the will or the deed that says if you get the bargain rate on purchase or got more in inheritance than your sister to make the cash flows work, if you sell the property within, say, ten years after you inherit it and/or buy it from your sister, and you have a profit, you and/or your heirs, spouse, etc. have to pay back the difference to the sister of what she received versus what you got on the sale. If neither of you is farming, then it should be equal shares.

So, this estate plan needs to be balanced two ways – one for you farming – and one if you don’t continue to farm. That’s a bit of trick in wills, but it can be done once you understand simple ground rules like these.

“Keeping the Family Farm in the Family”
Great Plains Diversified Services, Inc.
1424 W. Century Ave., Suite 208
Bismarck, ND 58503-0917
Telephone: 701-255-4079
Fax: 701-255-6106
Toll Free: 1-800-373-4078

Alice and Anton Buttons came in to visit with me. Prior to them coming in, we send out a Confidential Survey to fill out listing all of their assets and liabilities so we can measure the true value of the estate. Anton had listed the farmland values at about fifty percent of market value putting seven hundred dollars per acre. “I think these land values or on the way down” said Anton. “There’s going to be a huge drop in value coming up so I listed the land low.”

After finding land was selling for closer to two thousand an acre in his area for mixed land, we compromised at fourteen hundred per acre.

“We want to make certain the government doesn’t get our land if we need long-term care. We also have quite a bit of savings we’d like to put somewhere in the kid’s names so this cannot be used for long-term care also. We’d like to protect everything we have. We’re in excellent health now, so we thought now was the time to move these assets.” The entire estate added up to more than five million dollars.

I asked Alice and Anton who they thought was going to pay for their long-term care costs should they need care in the future. Again, they thought the government and Medicaid should pay. Not an uncommon attitude out there – they were just brash enough to express it openly. Many people feel this way, but never say it out loud.

I explained “The government would pay – if you should get through your five year waiting period on gifts – this much is true. However, when the government pays, it’s not really the government that pays. Approximately forty percent of Medicaid costs are borne by the state of residence – in this case, my state. As such, my state government needs to bring in X amount of dollars to pay for this care. They get this from taxpayers. The other sixty percent comes from the federal, but we all pay federal taxes as well. As such, it’s not the government who pays – it’s really all of us taxpayers – friends, neighbors and other residents – who will pay.”

I had one last question for Alice and Anton. “Do you really believe it to be fair you should put aside more than five million dollars in land and savings and push the burden of your healthcare on to us – to your friends, neighbors and other residents of our state?”

Anton and Alice said “We never thought of it that way. I guess we want to be responsible for protecting ourselves and our assets, but we really don’t feel it’s fair to put our health care cost burden on everyone else.”

With a changed perspective, we were able to move some of their savings into asset based care whereby they were able to more than double their cash savings into long-term care protection and a tax free death benefit to their children if they died without losing any liquidity. We also made moves on the ownership of their property so that if the best they could do wasn’t good enough, the land was still protected. All in all, a cohesive approach to protecting the property with them shouldering their own costs of long-term care.

I’ve seen many, many things come and go over my many years in this business. The reason the good things tend to disappear – from a government perspective – is people who shouldn’t be taking advantage of the laws are taking advantage. As such, if our state or federal government determines too many people are not paying for their health care because they moved huge amounts of dollars out of harms’ way, these loopholes will be closed.

Our country has recently moved in this direction regarding healthcare – ‘Those that have assets will pay for those who have little or no assets to pay for their healthcare.’

As such, those of us who have assets had better be planning in our estates how to shoulder our own burden of health care – including long-term care.

If too many people take advantage of a system who probably shouldn’t qualify, you’re going to see a lots of changes and quickly. Perhaps these changes will entail longer look back periods, not allowing life estates or trusts of more than a certain value or other drastic measures. But this is what happens when too many healthy and financially capable people pass that burden on to other taxpayers.

“Keeping the Family Farm in the Family”
Great Plains Diversified Services, Inc.
1424 W. Century Ave., Suite 208
Bismarck, ND 58503-0917
Telephone: 701-255-4079
Fax: 701-255-6106
Toll Free: 1-800-373-4078

Greg and Martha came to me with issues regarding their estate. ‘We have three children but none of them want to farm. However, we have a grandson who has been farming with us for a lot of years and we’d love to give every opportunity for him to farm. How do we set things up to have the farm go to him and yet have our children get something from our estate?’

Their grandson, Jackson, was twenty-three years old, single and had worked on the farm since he was seventeen. Because he was fairly young and still not married, it left a few issues as to where he was going to be five or ten years in the future.

Greg and Martha wanted to make certain their farm was protected from any health issues that they had in the future. They had some funds in an IRA, but these funds would only cover about two years of care for them.

As we discussed different avenues of protecting their property – trusts, life estates, etc. – they also had to be aware that if their grandson were to own something upon their death, what would protect him from a divorce or a death whereby his assets – including the deed – go to his spouse.

There’s always, I’d like to say, a fine line between being able to make a farm operation succeed in following generations and not.

But it’s not a fine line – it’s a very big, thick, fat line. That grandson has to be able to control at least forty-five percent of the assets or he is not going to be able to get financing to make his operation run.

Greg and Martha could use an irrevocable trust whereby if they should die, the land would be held for a few years until the grandson grew up, or got past the years where finances and marriages have a tendency to have a high failure rate. They could put terms and conditions for Jackson to receive the property such as he is to receive the land once he buys out a share – not necessarily an equal share from his mother and two aunts. Or he could pay rent to them for a number of years and receive the property when he reaches age forty or has paid at least ten years of rent to them.

Greg asked “What happens if we change our mind down the road and we decide Jackson is not the person who should be on the farm. We don’t know who he’s going to marry and how that will affect our lives?”

The problem with the irrevocable trust is once it’s set into place and the ownership of the assets is transferred to the trust, as long as Jackson lives up to the terms of the trust, he’s going to get the property.

The other issue is Greg and Martha cannot exercise any control over the assets once the assets have been transferred to the trust. If they exercise any control – such as what will be planted in the fields – Medicaid will deem this trust to be a sham trust and therefore all assets in the trust would be countable assets.

It’s a common misnomer people believe Medicaid would sell the assets themselves. They don’t do that – they just take the value of the assets and divide it by your cost of care and tell you that you are ineligible for Medicaid benefits for so many months. In other words, if you have five hundred thousand of countable assets and your care costs are five thousand per month, you’re ineligible for Medicaid payments for one hundred months. If you need care someone will pay for it – just not them.

In Greg and Martha’s case, they decided they wanted the deed to reside with Jackson subject to terms. They also gave a secondary life estate to their daughters with the condition that Jackson could buy out their life estate interest at any time. If he bought them out at an appraised value, they were out.

Jackson also had to be an active farm participant to be able to buy them out or to rent the land at the rate we set in the life estate deed – a percentage of the Average County Rents – in this case. If he resold the land within ten years, then he had to pay his mother or aunts the difference in the price he paid them to what he received.

“Keeping the Family Farm in the Family”
Great Plains Diversified Services, Inc.
1424 W. Century Ave., Suite 208
Bismarck, ND 58503-0917
Telephone: 701-255-4079
Fax: 701-255-6106
Toll Free: 1-800-373-4078

Dear Michael:

We have put twenty-six years into helping my wife’s parents on the farm. We have helped them farm when they farmed, took over and improved the entire farm after they retired and still help Mom with decisions after Dad passed away. Now that Mom is in her upper eighties, all the children and grandchildren are coming home and asking Mom for support or what’s going to happen to the land. We’ve never asked for anything, but it seems like the other kids are wanting their inheritance now. Mom isn’t thinking as good as she used to and perhaps they are taking advantage of her? What can we do to protect ourselves from losing everything we worked on? – Watching It Slip Away.

Dear Slipping Away: During the time you worked on the farm, did you have any sort of contract with Mom or Dad – or an option to buy – or anything in writing?

The power of the signature is incredible. You can make wills or options to purchase or just about any kind of legal agreement on anything from school tablet paper, to the back of another receipt to restaurant napkins.

There are a couple caveats, however.

If it’s just you and the other person, it’s good to have the signature witnessed by one or more people. It’s not always necessary but it is prudent to do so. Depending on the depth of the document, you may want to get a ‘temporary’ agreement from the napkin transferred to a document produced by an attorney. In the meantime, grab the waitress and, if she knows both of you, and have her witness your signatures.

If you have the handwritten agreement signed in a private home, it can be argued that Mom or Dad signed the paper and didn’t know what they were signing.

However, that’s the argument the other heirs would have to make and make stick before this handwritten agreement could be annulled.

Here is the downside to not having anything written down and signed by both parties as to what is going to happen.

All the work, all the promises made, all the best intentions disappear into thin air when either of the parties dies or ‘forgets’ about the agreements made.

Ethically, should you have the same – or even a larger share – than the other siblings? The answer would be obviously ‘yes’! Will that happen? Not if the other siblings convince Mom to give away her estate before she dies, or have her change her will, or use their power of attorney to spend money on themselves.

As we age, our sense of reason and what’s a good decision and what’s a bad decision seems to totter back and forth each day – and oftentimes we can be influenced by whoever is spending the most time with us each day. Or maybe it’s the person who can tell the best story and convince Mom this is a good thing to do on this day.

Proving that Mom is making bad decisions, however, is an entirely different kettle of fish. Just like the burden of proof would be upon the other siblings to prove the aforementioned signatures were coerced or manufactured in some way, the fact she is making these gifts of a questionable nature doesn’t mean you’ll be able to prove that she doesn’t know what she’s doing.

That would take a hearing regarding the ability of Mom to take care of herself and the courts to determine if she is a ‘vulnerable senior’. Unfortunately, she’d have to be a drooling idiot before any court would put her into guardianship and would take away her ability to make gifts. If she can still talk and stand upright and say she knows what she’s doing, it’ll never happen.

The other children taking advantage of her is unfortunate for you and any other siblings who are not partaking. However, without any documents or agreements of any kind signed by her or Dad, I’m afraid you’re going to have to take the high road on this matter and realize that some people will take whatever they can without conscience or losing a minute’s sleep, while other people wouldn’t touch a dime that wasn’t theirs.

But you still have to live with yourselves and, if God blessed you with a conscience, then unfortunately you may have to live with your conscience and believe in a higher power making things right at some point.

“Keeping the Family Farm in the Family”
Great Plains Diversified Services, Inc.
1424 W. Century Ave., Suite 208
Bismarck, ND 58503-0917
Telephone: 701-255-4079
Fax: 701-255-6106
Toll Free: 1-800-373-4078

Dear Michael:

We are long-time readers and appreciate your opinions on farm and ranch estate planning. It seems like every time we sit down and get serious about putting together a plan or putting things down in writing, for example, a will, something appears about ready to change or has changed and we haven’t had time to see the outcome of these changes. For example, our son just moved back home, but we don’t know if farming is the life for him. So, we just sit on our hands or put it off until another time. Perhaps this isn’t the right thing to do, but what else can we do? – Procrastinating to a Clearer Future.

Dear Procrastination: I looked on Google about famous quotes on ‘procrastination’ to find one that was appropriate and, to my amazement, there are millions of them online. So, although no one seems to find time in their days to finish their work, or planning, in this case, they seem to have the time to think about it. I did find the one: What may be done at any time will be done at no time. ~Scottish Proverb

If there was ever a perfect year for procrastination – and reasons for procrastination – this year would qualify. Rains came early in the planting season and lasted until late June. Then, it started raining at harvest time and every day of rain is two days of waiting for it to dry.

On the other hand, we’ve had 260 traffic fatalities in North Dakota in the past eight months, which is about a two hundred percent increase from six years ago.

Reading the paper lately makes one wonder about all the other weird and, oftentimes not so wonderful stuff occurring in our state since the boom. If I were driving north of Dickinson or west of Minot, it may be appropriate to wear a helmet – while you’re in your car.

When I drive around Bismarck these days, I notice most drivers are doing everything but actually driving the car these days. Close calls used to happen to me once or twice a year – now it’s more like once a week.

In any case, back to your question, planning for any big event seldom has a perfect day to start. If you waited for the perfect person and situation to get married, you likely would never have gotten married. If you had waited for the perfect time to have children, financially, emotionally, etc. you likely wouldn’t have any children. If you waited for the perfect time to acquire the first piece, or second piece or whatever piece of property you’re working on now, you never would have started in farming or ranching.

One of the main reasons people put things off in estate planning is waiting for a clearer picture of the future. You likely didn’t do this when you got married, or had children, or bought into the family farm, or added on to it, etc. but now that it’s time to actually sit down and plan for it, you’re unsure what to do.

The perfect estate plan covers all the ‘what if’s’ of estate planning. ‘What if’ your spouse should die? What things should they be doing? The answers are quite different whether it’s the farming husband who dies and the non-farming wife is left? This is one of the first questions I ask people and about ninety percent of these couples have never had this conversation and you’d be amazed at how differently they think about what they ‘guess’ should happen. You’d swear these are two strangers who just met on the street when you listen to the answers.

Your estate plan should also include ‘what if one of the children should decide to farm?’ Some families have candidates – other’s do not – some have too many.

Answers to these should be worded very carefully. For example, ‘if my farming child has taken over the family farm, and is ‘actively participating’ in farming for a  minimum period of at least five years, then s/he can rent or buy the land from their siblings at such and such a rate or valuation. The terms may be (contract for deed, cash within six months, etc.).

In other words, if we focus on the family farm as a business and have the proper verbiage to meet all and any considerations for the family farm to continue, we’ve just removed a big reason for you not to complete your farm estate planning. We maybe don’t know who or when or how, but we can put the verbiage in there so they can survive.

One thing is certain, if you put nothing in your plan about how the family farm will survive, you fall under the old saying ‘people don’t plan to fail, they just fail to plan’ and fail your family farm will.

It’s a simple question – if you could plan for a successful future or you could choose not to plan and guarantee failure, which would you choose?

“Keeping the Family Farm in the Family”
Great Plains Diversified Services, Inc.
1424 W. Century Ave., Suite 208
Bismarck, ND 58503-0917
Telephone: 701-255-4079
Fax: 701-255-6106
Toll Free: 1-800-373-4078

Dear Michael:

We read with some interest about your booklet your developing to help families determine how much of the farm should go to the farming child – their sweat equity in the operation – and what goes, then, to the other children.

We don’t have a current will. In fact, we don’t have a will at all. Will this booklet help us to understand our current situation and where we need to be in the future? How hard it is to fill out? – Back in School?

Dear Back in School? – Let’s just say, for the time being, this booklet will be a patient process. You’ll need to remember what you had before your farm heir started and what you’ve added since that time when s/he participated in the growth of the farm.

We then get into three different equations in the booklet. The first part of the booklet gets into situations – such as yours – where either you have no will or you have an outdated will from when the kids were young. You probably have the old standby ‘everything goes to my spouse and if they pre-decease me, then shared equally between all of my children’.

You use this section to fill in what happens when you die with this type of will – or no will. The farm assets will be divided equally between all of the children and the non-farm assets – such as savings, life insurance, and non-farm real estate – will also be divided equally between all of the children.

The question then asks ‘If your farm heir only receives this amount in farm assets and has to use his or her share of the non-farm assets to buy back the non-farming children’s share of the farm assets from the non-farm assets, what are his or her chances of making it?’ Many people, when they see these numbers, realize it’s impossible for the farming heir to make a go of it.

Oftentimes, I will then see a swing to other side and my clients will say ‘What happens if I give all of the farm assets to our farming child and the non-farming assets to our non-farming children divided equally between them?’

We then have a section to fill out where you can do just that. You put all of the farm assets into the farming child’s name and divide the non-farm assets between the other children.

For some people, they have sufficient non-farm assets to provide for the non-farming children. In other cases, due to the high inflation of farmland and other assets in farming in the past decade, the amount the farming child receives dwarfs the amount the non-farming children receive. Oftentimes, the non-farming children are getting less than five percent of the entire estate while the farm child receives eighty, eighty-five, ninety percent or more of your entire family estate. Most couples would look at this and say ‘That’s not fair to the other children!’

As usual, the answer always lies somewhere in between these two extremes – the farm child getting all of the farm assets or sharing equally with his or her siblings. Now we have the two extremes in black and white – extremes eighty percent of farm families already have in their wills.

In the first section of the booklet, we have some formulas to use such as how many years has your farm child worked with you and does s/he deserve a portion of the total value today, or a portion of the value added since s/he started, or various formulas you’d like to use. You’ll come up with a number as to what you feel the farming heir rightfully earned from his or her participation in the farming operation over the years.

We then have a third box – and this one accounts for the share earned by the farming heir. It takes the total amount of assets – puts the farm assets earned by the farm heir into his or her column – and then you can divide the remaining farm and non-farm assets equally. Some people might find the farm heir needs to prepare to buy out the percentage his siblings receive. You can then play with the formulas to determine the right balance.

The next section is the solution section – whether your farm child uses a contract for deed, outright purchase, rents, etc. We’ll get into that the next article.

The good news is this booklet is almost ready for mail use. The really good news is that it will soon be on our website where you can just log in, put in your farm and non-farm asset values, and it will fill out the rest automatically. The bad news is this on-line version is about two weeks away yet from the time of this article. It should be ready right around Halloween – we hope.

For those of you who like to fill stuff out on the computer and have the computer do the work for you, send us your email at info@greatplainsdiversifiedservices.com and we’ll let you know when we have this functioning. For those who prefer to fill things out by hand and do your own math, either email us at this same address or call and we’ll mail one out to you.

Michael Baron
“Keeping the Family Farm in the Family”
Great Plains Diversified Services
1424 West Century Ave., Suite #208
Bismarck, ND 58503
Telephone: 701-255-4079
Fax: 701-255-6106
Toll Free: 1-800-373-4078